P12-1B The Bynes and Moody partnership is considering three long-term capital invest- ment...

P12-1B The Bynes and Moody partnership is considering three long-term capital invest- ment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.

Project Amanda Project Debbie Project Penelope

Capital investment $140,000 $170,000 $190,000 Annual net income:

Year 1

$ 9,000

$12,500

$19,000

2

9,000

12,000

15,000

3

9,000

11,000

14,000

4

9,000

8,000

9,000

5

9,000

6,000

8,000

Total

$45,000

$49,500

$65,000

Depreciation is computed by the straight-line method with no salvage value. The com- pany’s cost of capital is 12%. (Assume cash flows occur evenly throughout the year.)

Instructions

(a) Compute the cash payback period for each project. (Round to two decimals.)

(b) Compute the net present value for each project. (Round to nearest dollar.)

(c) Compute the annual rate of return for each project. (Round to two decimals.) (Hint: Use average annual net income in your computation.)

(d) Rank the projects on each of the foregoing bases. Which project do you recommend? P12-2B Ben Paul is an accounting major at a western university located approximately 60 miles from a major city. Many of the students attending the university are from the

metropolitan area and visit their homes regularly on the weekends. Ben, an entrepreneur

at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Ben has gathered the following investment information.

1. Five used vans would cost a total of $90,000 to purchase and would have a 3-year useful life with negligible salvage value. Ben plans to use straight-line depreciation.

2. Ten drivers would have to be employed at a total payroll expense of $43,200.

3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $26,000, Maintenance $4,000, Repairs $6,000, Insurance

$4,500, Advertising $2,200.

4. Ben desires to earn a return of 15% on his investment.

5. Ben expects each van to make ten round trips weekly and carry an average of six stu- dents each trip. The service is expected to operate 32 weeks each year, and each student will be charged $15 for a round-trip ticket.

and cost of goods sold amounts for the October financial statements using the average cost , FIFO, and LIFO methods . Q127. Sales revenue for October totaled $ 26,000 . Compute Tomorrows’ gross profit for October using each method . Which method will result in the lowest income

$480 per 5 -day work week (Monday– Friday). Employees will begin working Monday, February 9. 5 Obtained insurance coverage for $9,840 per year . Coverage runs from February 1 , 2017, through January 31, 2018. Karen paid $ 2 ,460 cash for the first quarter of coverage. 5 Discussions

,400 due June 20. 7. Purchased supplies, including gasoline, for the golf carts on account, $ 1 ,000. Canyon Lake Golf and Country Club has agreed to allow Cory to store the gaso- line in one of its fuel tanks at no cost . 15. Received cash for services from June 1 –15, $ 5 ,400. 17. Paid cash

.) Required a. Compute the average total depreciable life of assets in use for each firm. b . Compute the average age to date of depreciable assets in use for each firm at the end of the year . NewMarket Monsanto Olin

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